Navigant Research Blog

Self-Consumption Markets Are the Future of Solar

Roberto Rodriguez Labastida — May 2, 2017

Regulatory changes and the increase in retail electricity prices have made some markets ripe for new business models built around increasing solar self-consumption by adding other energy solutions (like batteries or Internet of Things, or IoT).

In my previous blog, I showed how solar installations can benefit from increasing levels of self-consumption. When this is the main economic driver for solar, we define the market as a self-consumption market. While the blog cited the United Kingdom as an example, that is not the only country in which this strategy works.

European Countries Lead Self-Consumption Markets

Here’s a selection of the most attractive self-consumption markets:

Germany: Germany is in a similar situation to the United Kingdom. The feed-in tariff in the country (€0.123/kWh [$0.135/kWh]) is significantly below some retail electricity prices. For example, residential rates cost around €0.30/kWh ($0.33/kWh). To fully benefit from a solar installation, Germans need to displace as much as possible of their own consumption. In addition, Germany offers an incentive to install batteries along solar PV systems. German government incentives cover up to 30% of cost for a PV system battery, making the economics of self-consumption even more attractive.

France: Like in Germany, the current French feed-in tariff of €0.1382/kWh ($0.151/kWh) for behind-the-meter installations of up to 36 kWp is below retail electricity prices (€0.20/kWh [$0.22/kWh] for residential customers). So there is also an arbitrage opportunity for installations, although the economics are weaker than in Germany.

Spain: Despite Spain’s bad reputation in the renewables sector—well deserved given the retroactive changes to its incentive program and the introduction of the infamous tax on the sun—the country is becoming an attractive self-consumption market for installations under 10 kW. Spain has the best solar resources in Europe. Now the levelized cost of distributed solar is below the retail electricity price, opening an arbitrage opportunity for solar installations with high levels of self-consumption.

Self-Consumption Markets by Attractiveness

(Source: Navigant Research)

US Self-Consumption Markets Are Trying to Catch Up

The economics of self-consumption of solar in the United States are weak given the dominance of net metering as the main tool to incentivize solar. There are some states that are moving away from pure net metering that will increasingly be more attractive to providers of integrated solutions.

One example is Arizona. Per the new settlement reached between Arizona Public Service (APS) and local solar advocacy groups, energy exports of new distributed solar installations in Arizona will not be included in the old net metering program. Instead, it gives all new distributed solar customers the option to take a demand-based rate or a time-of-use rate.

If the new structure is approved by the Arizona Corporation Commission (ACC), it would set the self-consumption offset rate around ¢12/kWh, which includes a grid access fee that APS solar customers must pay. The new export rate, based on the ACC’s newly adopted resource proxy model, would be ¢12.9/kWh. Although these changes will not be enough to attract investment in expensive technology like batteries, it does send a signal to end users to start behavioral changes to increase self-consumption. It might be enough to encourage some level of IoT investment in energy management systems and automation.

Near-Term Growth Is Unlikely

From a purely growth perspective, self-consumption markets are likely to disappoint in the short term. The extra complexity they present needs to be well understood by solar players. In addition, end users and business models will need to be tested before being rolled out cheaply en masse. The strategies that are successful in those markets—and less dependent on incentives and more so on solar economics—are most likely to rule the distributed solar sector in the future.